Analysts React: AT&T/T-Mobile ‘All But Definitively Dead’

ByStephen Grocer

Christopher C. King, Stifel Nicolaus: “Our regulatory team in D.C. believes that the DOJ is intent on blocking the deal and is not simply using today’s announcement as a negotiating tactic and that AT&T is likely to sue the DOJ to obtain approval for the acquisition, however today’s announcement does suggest that AT&T now faces a long, uphill battle for approval.” King adds that the move is negative for Verizon (and AT&T) because it would make it much more difficult for either company to grow its U.S. market share via M&A.

Michael Rollins, Citigroup:“We believe the probability for the deal to get approved has dropped considerably from our prior expectation of 65% to 25% and we have reduced the potential synergy benefits of the deal from $5 to $3 per share given the likelihood for a greater amount of conditions if AT&T were able to find common ground for merger conditions with the DOJ and FCC. We believe the downside risk for T’s share price is to $27-28 in the near-term if the transaction does not get completed, and AT&T needs to pay the break-up fee that we value at ~$1 per T share.”

Craig Moffett, Bernstein Research: “AT&T’s acquisition of T-Mobile can be considered all but definitively dead…This clearly came as a significant shock to executives at both companies. But perhaps the most significant take-away from today’s events is that the end of the AT&T/T-Mobile deal is likely to be bad for all the U.S. carriers. There’s no good way to spin this for AT&T. They lose a key driver of synergies, and therefore earnings growth in 2012 and beyond. And they face a more dire spectrum shortfall, suggesting the need for higher capital spending and/or additional spectrum purchases.”

Christopher M. Larsen, Piper Jaffray: What happens if the deal is dead? T-Mobile USA lives on, for now, although it is a company with a reluctant owner and likely not enough spectrum to build an LTE network on its own. Sprint has been discussed as a possible suitor, and although combining the two weakest national carriers could be viewed more favorably by the DOJ, approval is not a certainty as the DOJ comments indicated preference for 4 national carriers. If any combination of the national carriers is off the table, they may look to prepaid providers Leap and MetroPCS for scale and spectrum; additionally, spectrum plays like DISH or LightSquared could become more attractive as an acquisition or viable on their own.

John Hodulik, UBS: AT&T had agreed to pay $3B in cash to Deutsche Telekom and contribute specific AWS spectrum and a national roaming agreement with T-Mobile USA if regulators scuttled the deal. The DoJ mentioned that the “door is open” for AT&T to propose remedies, but we believe the agency’s statement emphasizes the need to maintain a four-player market. Were the deal to break, we believe it would be good for towers, give Sprint options and maintain a high-level competitive intensity in the U.S. wireless market.

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